Select Committee on European Union Fortieth Report


CONSUMER PRICES (6546/06)

Letter from the Chairman to John Healey MP, Financial Secretary, HM Treasury

  Your Explanatory Memorandum dated 7 March, submitted on behalf of the Office for National Statistics, was considered by Sub-Committee G on 23 March.

  Your EM says that only the UK and Ireland are opposed to this Proposal, although the Commission's EM reports that Germany also voted against it while Hungary and Poland abstained. Has the German position changed and why has this particular division of opinion arisen among Member States?

  It would help us to understand the significance of the Government's position if you could explain the importance of this particular index to the UK and the Government's technical objections to it in non-specialist terms.

  Although we accept that a precise estimate of the extra costs of implementing the Proposal may depend on the methodology employed, we would welcome the best indication you can give of the probable costs and benefits involved to give us a better understanding of how serious a problem this is likely to be.

  We note that the Commission do not appear to have carried out a full Regulatory Impact Assessment and would be glad to know whether the Government intend to demand one.

  Neither the Commission document nor your EM make any reference to subsidarity. We would be grateful if you would confirm whether any subsidiarity issues may arise from this Proposal and, if so, what opinion the Government has about them.

  Your EM says that this Regulation is expected to enter into force by December 2007 at the latest, but it does not say anything about any plans for Council consideration, which we also need to know.

  We will keep this document under scrutiny pending your reply on all the above points.

24 March 2006

Letter from John Healey MP to the Chairman

  I am writing in response to your letter of 24 March on the above proposal, asking for further information.

  I will firstly give some of the history of this proposed regulation. At the Statistical Policy Committee (SPC) in May 2005, all Member States voted in favour of it except the UK, Ireland, and Germany who voted against and Hungary and Poland who abstained. The voting broadly reflected current national statistical practices, ie those voting in favour were those countries which currently spread their price collection over a period of time. However, the positions of Member States at SPC are only indicative.

  At the meeting of the Council Working Party on Statistics on 2 March 2006, the text of the draft Regulation was supported by Member States under the condition that the provisions of this Regulation shall be implemented in December 2007 at the latest and take effect with the index for January 2008, one year later than the previous proposals. The UK and Irish delegations still expressed reservations. It is understood that Germany does not believe that the regulation represents value for money (they take the view that the benefits to harmonisation do not justify the implementation cost) but voted in favour of it at the Council Working Party because a one year deferment to the original implementation of early 2007 was proposed and it became clear that with the change in voting by Hungary and Poland the regulation could not be stopped. A starting date of early 2008 makes implementation easier for Germany because it coincides with the introduction of a new computer programme for CPI-compilation. Hungary and Poland have not indicated the reasons behind their changes of position. The UK voted against the proposal.

  In the UK the HICP is known as the Consumer Prices Index (CPI) and is the UK inflation target. The UK is opposed to the regulation as being too prescriptive to the point of being over-concerned with the details of price collection (rather than the comparability of the final index) and because its effect would be to smooth out volatile prices, such as those experienced with petrol prices and also seasonal price differences of fruit and vegetable prices, thereby hiding genuine price movements. A smoothed index can be a useful supplement to identify overall trends but as an alternative index with no additional information, can make an understanding of the main drivers of inflation more difficult.

  A financial impact assessment of the implementation cost has been made by the Commission. The impact on businesses is minimal as the number of prices to be collected will be similar to the number of prices collected at present, only the timing of collection may change. The main impact of the Regulation falls on the operations of National Statistical Institutes (NSIs). The commission will fund two-thirds of any additional costs for the first two years after implementation. The costs for the UK are estimated to be about £700,000. Please note that this is only an approximate estimation. A copy of the Commission's financial impact assessment is given in the draft regulation (attached (not printed)).

  In principle, the EM issued by the Commission on this proposal states that subsidiarity does apply. In practice, and unlike the primary purpose of previous HICP regulations, this regulation relates to the comparability of the "inputs" (basic data) of the index rather than the comparability of the "outputs" (results). The proposed regulation sets out rules for the price collection period for the HICP. It states that price collection should take place at least over a period of one working week around the centre of the month. For products which show sharp and irregular price changes, the price collection period should be extended to more than one week—in particular for fresh food and energy products. As a minimum member states must collect prices over at least six working days. Any collection period up to the whole month is allowed and this is entirely at the discretion of individual Member States.

  This regulation has now been approved and adopted under Qualified Majority Voting. It was taken as an "I"point at Coreper on 29 March and adopted as an "A" point at the Council on 25 April.

  I hope this provides the clarification requested.

31 May 2006

Letter from the Chairman to John Healey MP

  Thank you for your letter dated 31 May which was considered by Sub-Committee G on 22 June.

  We are grateful to you for clarifying the position over the changes in voting by Member States on the Proposal and for explaining how it is likely to work in practice.

  We also note that, despite the UK's continuing objections, the Proposal was adopted by qualified majority vote at the Council on 25 April. We are therefore releasing the document from scrutiny.

23 June 2006



 
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